The Hidden Costs of Cyberattacks: Protecting Your Small Business's Value
This past summer, a security update deployed by CrowdStrike, a cybersecurity company, resulted in canceled flights, delayed medical procedures, and employees arriving at work only to be greeted by a blue screen of death. This worldwide disruption reinforced for businesses, both large and small, how reliant and connected our society—and businesses—are on a healthy and robust digital landscape. In today's interconnected world, cybersecurity is no longer just an IT concern—it's an essential factor in maintaining and enhancing the value of a business. As cyber threats continue to evolve, understanding the financial implications of these risks is essential for both business owners and potential buyers.
The Cost of a Cyberattack
Cyberattacks can wreak havoc on businesses in ways that aren't immediately visible. Operational disruptions and lost productivity caused by cyberattacks can have various financial implications for businesses, especially smaller Main Street operations. From damaging reputations to losing valuable customers and facing potential legal action, the aftermath of a cyberattack can cause lasting repercussions that impact both a business's finances and its market value.
Operational Disruption
One of the biggest impacts of a cyberattack is the disruption to operations. Main Street businesses hit by cyberattacks often face periods of downtime, leading to lost productivity and missed business opportunities. Cash flow problems can arise from cyberattacks causing disruptions, such as delays in invoicing. Missed deadlines and unfulfilled orders can leave customers disappointed and vendors frustrated, harming long-term relationships and business reputation.
Long-term Financial Impacts
The effects of a cyberattack can be felt long after the immediate threat is addressed:
- Increased Insurance Premiums: After an attack, businesses may face higher cybersecurity insurance rates.
- Legal and Compliance Costs: Depending on the nature of the breach, businesses may incur legal fees and fines for non-compliance with data protection regulations.
- Reputational Damage: Difficult to quantify, but potentially the most damaging, is a loss of trust from customers and partners.
Cybersecurity and Business Valuation
Small business owners who are considering selling their business should be aware of the significant impact that cybersecurity has on valuation. As part of their due diligence, potential buyers will carefully examine your cybersecurity measures. A history of breaches or weak security practices can heighten the perceived risk, potentially diminishing the business’s value or discouraging potential buyers.
Customer data, proprietary information, and intellectual property are often intangible assets that contribute significantly to a company’s overall value. By implementing a strong cybersecurity strategy, you safeguard these valuable assets, ensuring the lasting value of your business.
Investing in Cybersecurity
Business owners who view cybersecurity as an investment—rather than an expense—can enhance a business’s value. If you’re thinking about selling your business, ensuring that you have detailed records of your cybersecurity practices, and a history of handling digital risks can make the due diligence process easier and potentially enhance buyer trust.
Looking Ahead
Small business may want to consider the following:
- Identify Vulnerabilities: Businesses should take a good look at where they might be vulnerable to cyber threats. It's important to figure out what needs the most protection – like customer data or financial records.
- Develop a Contingency Plan: Having a plan for handling a potential cyberattack can help businesses react quickly and limit damage if an incident occurs.
- Prioritize Staff Training: Employees can be the best defense or the biggest risk. Regular training can help staff spot potential threats and know how to respond appropriately.
- Consider Cyber Insurance: While it doesn't replace good security practices, cyber insurance can act as a safety net, helping to cushion the financial impact if an incident does occur.
Your small business's financial health and overall value are connected to the state of your cybersecurity. By understanding the true costs of cyberattacks and investing in robust security measures, you're not just protecting your current operations—you're safeguarding your business's future value and marketability. Discover what your business is worth with BizBuySell’s Valuation Tools.